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Your Debts in Bankruptcy

February 4th, 2019 at 8:00 am

Bankruptcy is about debts. Different categories of debts are treated differently. The categories are secured, priority and general unsecured 


Your debts are the reason you are reading this. You want to know how bankruptcy would deal with your debts.

  • Will bankruptcy write off all your debts?
  • Can you keep paying some of your debts like a vehicle loan or home mortgage to keep that vehicle or home?
  • What happens to special debts that you can’t write off like child support and some income taxes?

To answer these and other similar questions we start by getting to know the 3 legally different categories of debts: 

  • secured
  • priority
  • general unsecured

Your rights and obligations, and those of the creditor, are different with each category of debt.

Secured Debts

Each of your debts is either secured by something you own or it is not. A secured debt is backed up by a lien, a legal interest of the creditor in some kind of property of yours. See Section 101(37) of the U.S. Bankruptcy Code.

Usually you know whether a debt is secured. For example, in a vehicle loan the vehicle’s title states that your lender is the lienholder. That lien on the title makes the loan secured by the vehicle. That, together with the security agreement you signed, gives the lender certain rights over your vehicle.

Sometimes you don’t know whether a debt is secured. For example, most purchases on major credit cards create a debt that is not secured by whatever you purchased. But some card purchases—such as on some retail store affiliated cards—do create a secured debt. The paperwork that came with your card (which you’ve likely thrown away!) should tell you. Your bankruptcy lawyer will also likely know, or can find out.

Occasionally, a creditor wanted the debt to be secured but it isn’t because the creditor messed up. It didn’t take the legal steps required to make that happen. This could mean that you don’t have to pay the underlying debt and still get to keep the property at issue.

A debt could also be only partially secured. If you owe $10,000 on a vehicle worth only $6,000, the debt is partially secured. It’s secured as to the $6,000 value of the vehicle and unsecured as to the remaining $4,000 of the debt. (See Section 506 of the Bankruptcy Code.) In the right circumstances you would not need to pay the full $10,000 debt and could still keep the vehicle.

Priority Debts

The law has selected some debts to be treated better than others, each for certain specific reasons. For example, child support payments are given many advantages, both inside and outside bankruptcy, because legislatures have decided that paying child support is an extremely high societal priority.

Priority debts are themselves prioritized within their different types. The higher-priority priority debts are treated better than the lower-priority one. Here’s a list of the most common priority debts for consumers or small business owners in order of priority:

  • child and spousal support
  • certain wages and other compensation owed to a debtor’s employees
  • certain (usually more recent) income taxes, and some other kinds of taxes

Priority debts are important in bankruptcy for a practical reason. Often only certain debts get paid, or get paid more than other debts. So a priority debt may get paid in full while other debts get paid little or nothing. We’ll explore how this works in Chapter 7 and Chapter 13 in our upcoming blog posts.

General Unsecured Debts

All debts that are not secured are unsecured debts.  “General” unsecured debts are just unsecured debts that are also not priority debts. So if a debt is not secured and does not fit any of the priority debt types, it’s general unsecured.  

Most people considering bankruptcy have mostly (and sometimes only) general unsecured debts. These include every possible way you can owe a debt. Examples include: most credit cards, just about all medical debts, personal loans without collateral, NSF checks, payday loans without collateral, unpaid rent and utilities, older income taxes, repossessed vehicle balances, most student loans, and other contract or legal claims against you.

Previously secured debts sometimes become general unsecured ones. One example: after a vehicle gets repossessed and sold, any remaining debt is a general unsecured one. Also, previously unsecured debts sometimes get secured. A general unsecured credit card balance can become secured by your home if the creditor sues you, gets a judgment, and records a judgment lien against your home.

 

Starting next week we’ll show how these different categories of debts are treated in bankruptcy.

 

Cramdown on Collateral Not Purchased with the Debt

January 15th, 2018 at 8:00 am

The 910-day & 1-year conditions for doing a Chapter 13 cramdown don’t apply if the creditor doesn’t have a purchase money security interest.

 

The Cramdown Advantage

Last week we got into Chapter 13 cramdown of vehicle loans and furniture loans. Cramdown can be an excellent way to keep personal property that’s securing a loan. It allows you usually to reduce the monthly payment as well as the total you pay on the debt. Often the reductions are significant. Cramdown can enable you to keep a vehicle or some other important personal property that you couldn’t otherwise. It can be a reason to file a Chapter 13 case because it isn’t available under Chapter 7 “straight bankruptcy.”

The 910-Day and 1-Year Conditions

But as we’ve been discussing there is a timing condition you must meet to qualify for Chapter 13 cramdown. With vehicles you must have entered into the contract at least 910 days (about two and half years) before filing the Chapter 13 case. With any other kind of collateral the contract must be at least a year old.

So, if you bought and financed a vehicle two years ago you can’t do a cramdown on the loan. If you paid too much and it’s depreciated a ton since then, too bad. You are stuck with the full balance on the vehicle loan.

Purchase Money Security Interest

However, in some circumstances these 910-day and 1-year conditions don’t apply. Then you can do a cramdown at any time. That’s if you did NOT buy the collateral with the proceeds of the loan at issue. Rather you owned the vehicle or other collateral free and clear and provided it as collateral for a loan. If so, the 910-day and 1-year conditions don’t apply and you can do cramdown on newer loans.

An Example

Imagine that eighteen months ago you took out a car title loan for $4,500. You had fallen behind on your home mortgage and were desperate to catch up. The collateral on the title loan was your sole vehicle, which had no liens against it at the time. It’s now worth $2,000.

You knew that the 50% interest rate was crazy but you’d expected to pay the loan off quickly with a tax refund. But your refund was smaller than you expected, and went to other even more pressing expenses. So you renewed the title loan, twice. You now owe $5,500 because of the interest and renewal charges. You’re supposed to pay $500 per month on that loan but have just fallen a month behind. You are afraid your car is about to be repossessed. (See “The consumer perils of a car title loan.”)

You’ve decided to file bankruptcy. On the advice of your bankruptcy lawyer you are filing a Chapter 13 “adjustment of debts” case.  There are other reasons having to do with your home mortgage, but you also learn you can do a cramdown on this car title loan. You can do so even though you’re still a year short of the 910 days since getting the loan.

Chapter 7 vs. 13

If you filed a Chapter 7 case instead you’d be stuck with the car title loan if you wanted to keep your vehicle. The lender might be willing to adjust some of the terms of the loan. But it would have no obligation to do so. Bankruptcy does not remove the lender’s lien from your vehicle’s title. The only leverage you have is your threat to let them take away your vehicle. (That way the lender would only get the liquidation value of your vehicle.) But the lender knows that you likely really need your vehicle. So that threat often doesn’t help make the lender more flexible. As a result, under Chapter 7 you’d likely have to pay the full balance of $5,500, at $500 per month, at the exorbitant interest rate, or close to it.

Under slightly different circumstances there could be a similar result even under Chapter 13. Assume that you’d bought the vehicle and financed it through this lender 18 months ago. You would not qualify for Chapter 13 cramdown because you wouldn’t meet the 910-day rule. You wouldn’t for another year.

That’s because that 910-day condition only applies “if the creditor has a purchase money security interest securing the debt.” (See the unnumbered “hanging paragraph” right after Section 1325(a)(9) of the U.S. Bankruptcy Code.)  “Purchase money security interest” is not defined in the Bankruptcy Code. But it essentially means a creditor’s right to your property created when you use the creditor’s money to purchase that property and immediately give the creditor a security interest in that property.

So if you give a creditor a security interest in collateral you already own, the 910-day and 1-year conditions don’t apply. (That’s a non-purchase money security interest.)  You can go ahead and cramdown this car title loan.

Cramdown at Work

The result is that you and your lawyer would propose to pay $2,000 as the secured portion of this loan. Your payment plan would have you pay, say, $100 per month (instead of $500). You’d reduce the interest rate to about 6% (instead of 50%).

The creditor would not have much say about this, except possibly to dispute the value of the vehicle. It might also have some argument with the appropriateness of the monthly payment amount and interest rate. But most likely the terms would end up as you proposed or not much different.

The remaining unsecured portion of $3,500 would be lumped in with all your other general unsecured debts. You would pay these only to the extent that you could afford to pay them during the 3-to-5-year plan. Because all or most of your money would instead go towards secured and priority debts, likely little or nothing would be available to pay this $3,500.

At the end of the Chapter 13 case, whatever wasn’t paid would be discharged—permanently written off. You would end up paying a fraction of what you would have otherwise on the title loan. You would be able to keep your vehicle when it would have been very difficult or impossible without cramdown.

 

Unsecured Debts in Bankruptcy

December 8th, 2017 at 8:00 am

Your debts are either secured by something you own, or they are unsecured. Unsecured debts are either “priority” or “general unsecured.”  


Unsecured Debts

Debts that are unsecured are those which are not legally tied to anything you own. The creditor has no “security” attached to the debt, no “security interest” in anything. It has no right to repossess or seize anything of yours if you don’t pay the debt.  It can only pursue the debt itself.

It’s usually easier to deal with unsecured debts than secured ones in bankruptcy. Most unsecured debts can be discharged—legally written off—through either Chapter 7 “straight bankruptcy” or Chapter 13 “adjustment of debts.”

An Unsecured Debt Can Sometimes Turn into a Secured One

Under some circumstances an unsecured debts can become secured if you don’t pay it.

For example, you could be sued by the creditor on a debt, resulting in a judgment against you. The creditor may be able to turn that judgment into a lien against your home and other possessions. The debt would then be secured by your home and/or other possessions. (The details of this depend on your state’s laws.)

Another example: if you get behind on income taxes the IRS can record a tax lien against your real estate and personal property. It does not need to sue you.

Filing bankruptcy can stop a lawsuit from turning into a judgment lien. It can often stop the recording of an IRS tax lien. In these and similar situations it’s much better to file bankruptcy before creditors can turn unsecured debts into secured ones.

Also, Sometimes a Secured Debts Can Turn into an Unsecured One

After a secured creditor repossesses or seizes its “security,” and sells it, any remaining debt would then be unsecured.

 A secured debt could become unsecured in various other ways. The “security” could be lost or destroyed, leaving the creditor with nothing to seize. Another secured creditor with prior rights could seize the “security,” leaving the creditor with the “junior” position no longer secured. There are various tools in bankruptcy for turning secured debts into unsecured ones.

Seemingly Secured Debts May Actually Be Unsecured

Creating a “security interest”—a creditor’s rights over its “security—takes specific legal steps. If the creditor fails to take those steps appropriately, a debt that seemed to be secured actually isn’t. Your bankruptcy lawyer may ask you (or the creditor) for documentation to find out if a certain debt is really secured.                                   

Two Kinds of Unsecured Debts

There are two kinds of unsecured debts: “priority” and “general unsecured.”

“Priority” debts are those that the law treats as special for various reasons. Past-due child support and unpaid recent income taxes are “priority” debts. The law treats them as special, mostly by putting them ahead of other unsecured debts. Generally, “priority” debts have to be paid in full in bankruptcy before other unsecured debts receive anything.

“General unsecured” debts are simply the rest of the unsecured debts, those that aren’t “priority.”  “General unsecured” debts include most unsecured ones. Examples are almost all medical and credit card debts, retail accounts, personal loans, many payday and internet loans, unpaid utilities and other similar bills, claims against you arising out accidents or other bodily injuries, damages arising from contracts and business disputes, overdrawn checking accounts, bounced checks, the remaining debt after a vehicle repossession or real estate foreclosure, and countless other kinds. If the debt is not secured, and isn’t “priority,” then its “general unsecured.”

Unsecured Debts in Bankruptcy

In the next blog posts we’ll look at how Chapter 7 and Chapter 13 treat “priority” and “general unsecured” debts. Depending on which kinds of debts you have, these will help you understand and choose between these two options.

 

Example of How Chapter 13 Handles a Creditor with a Disputed Lien

September 2nd, 2016 at 7:00 am

Here’s a scenario showing how Chapter 13 solves problems that Chapter 7 doesn’t solve in dealing with a creditor’s disputed lien. 


Our last blog post got into what happens when you don’t think a creditor has a legally enforceable lien in something you own. We explored some practical problems if you addressed this situation in a Chapter 7 case. Essentially, the creditor has a lot of leverage to make you pay the debt, even with a questionable lien. We showed how Chapter 13 elegantly takes that leverage away, minimizing what you pay on that debt.

That last blog post begged for an example how this all works. We’re giving you that here today.

Our Example

Imagine that a year ago you bought one of those laptop computers that fold into a tablet for $500.  You got it an electronics store where you had an account, and put the whole purchase price on that account. The previous balance had been $750 from the purchase of a variety of items over the previous couple years. Then during the 6 months after buying the computer you bought other minor items totaling $250. After making minimum monthly payments for most of the last year you now owe $1,300 on the account.

For unrelated reasons you now have serious debt problems and need bankruptcy relief.

The Questionable Lien

So you meet with a competent bankruptcy lawyer who carefully reviews your situation with you.  You are left with the conclusion that both a Chapter 7 “straight bankruptcy” and a Chapter 13 “adjustment of debts” would greatly help, and you are trying to decide which way to go.

After this first meeting the lawyer reviews your paperwork from the electronics store. He or she informs you that the store arguably does not have a lien on anything you bought there. That includes your only significant purchase there, the laptop/tablet. The paperwork shows that the store likely intended to create a lien in the items purchased but did not seem to follow the legally required steps to do so.  In other words, the store would likely assert that it has a right to repossess the laptop/tablet, but there’s a good chance your lawyer could persuade a court that it does not have that right.

What Would Happen under Chapter 7

Your lawyer informs you that this situation causes some practical problems under Chapter 7. The store could try to enforce a lien against the laptop/tablet and whatever else you purchased. Your bankruptcy documents would have asserted that no valid lien attaches to this debt. But the store could instead demand that you pay the $1,300 debt to be allowed to keep what you bought.

Your lawyer would counter by arguing on your behalf that:

  • The store did not have a valid lien on anything that you had purchased.
  • Even if there was a lien, the only item sensibly worth repossessing and reselling was the laptop/tablet.  
  • But even that had greatly depreciated in value because electronics become quickly obsolete and are hard to resell.

So with your prior permission your lawyer would offer a compromise: you’d pay $100 to keep the computer. That’s sensible because the store would not likely get any more for it, especially after accounting for its resale costs.

But the store may dig in its heels. It may sensibly figure that the computer is worth a lot more than $100 to you.  Over the last year you may indeed have gotten really comfortable with it and now greatly rely on it. So the store could threaten to ask for a bankruptcy court determination that the lien is valid and, if successful, would repossess the computer, unless you agreed to pay the entire debt of $1,300 in monthly payments.

Your lawyer would inform you that you have a better than even chance of persuading the court there’s no valid lien. But the litigation to get there would cost you at least $1,000. So, because you really do need the laptop/tablet, you’d agree to settle the dispute by making monthly payments totaling some compromise amount, say $750.

The Chapter 13 Solution

But paying $750 is not a very satisfying result if the store really doesn’t have a legal right to anything you bought. So, to avoid the above scenario, on your lawyer’s advice you decide to file a Chapter 13 case instead.  You had other unrelated reasons to do so, but this store debt helped swing your decision in that direction.

So, you and your bankruptcy lawyer list the store’s debt as unsecured in Schedule F. Your Chapter 13 payment plan treats the debt accordingly.

One of two things then happens.

If the Store Objects

The store may object to it being treated as an unsecured creditor. If it does, and does so before the “confirmation hearing” (which is about two months after you file your case), there’s a streamlined court procedure for determining whether or not the store has a valid lien in what you purchased.

If the bankruptcy judge determines there’s no lien, the debt is treated as an unsecured debt just as you’d proposed.

This means that you pay only as much of the $1,300 balance as you can afford to pay during the length of the case. That’s after reasonable living expenses plus after first paying other debts that legally have higher priority. Often you would pay only pennies on the dollar; sometimes you would pay nothing of that $1,300. Then after you finish your Chapter 13 case the court permanently writes off whatever you haven’t paid.

This all assumes that the store files a proof of claim on time. If it doesn’t do so within a deadline about 4 months after your case is filed, it’s paid nothing. Then the entire debt is written off at the end of your case.

But what if early in the case the court instead determines that the store DOES have a valid lien? Then you’d have to pay a portion of that $1,300 as a secured debt in your Chapter 13 plan. That portion is determined by the fair market value of whatever the lien attaches to. Here the only item of meaningful value is the laptop/tablet. Although there would likely be some dickering about the appropriate dollar value, the store would not likely be able to establish that it’s worth more than about $150. So you would pay that amount over time in your plan. The rest of the debt—$1,150—would be treated as an unsecured debt, as discussed above.

If the Store Doesn’t Object

It’s not unusual for a creditor in the position of the store to simply not object to be treated as unsecured. Why would such a creditor just stay silent?

Because it knows that it has so much less leverage under Chapter 13 than under Chapter 7. It knows that you and your lawyer have a relatively inexpensive way to establish that its lien isn’t valid. It knows that even if it has a lien, its debt’s secured portion is going to be small. Depending on the case, even without objecting the store knows it will be paid something as an unsecured creditor (as long as it files a timely proof of claim). So any additional money the store would get by objecting would not likely justify its costs in doing so.

If the store doesn’t object by the time of the “confirmation hearing,” its debt is treated as unsecured. If it also doesn’t file a proof of claim by the deadline (about 4 months after filing), you pay it nothing in the Chapter 13 case. And the entire debt is permanently written off.

If the store doesn’t object but it does file a proof of claim for the $1,300 debt, the entire debt will be treated as unsecured. So you pay only what you can afford during the case (if any), and the rest is permanently written off.

Conclusion

Chapter 13 gives you so much more leverage in this situation than under Chapter 7. For a bunch of practical reasons the debt would more likely be treated as an unsecured one. If the lien is found to be valid you will much more likely be able to pay a relatively modest amount to keep your property. So, especially in a situation in which you are paying a small portion or nothing of your unsecured debts, Chapter 13 may well be the way to go if you have a disputed lien.

 

When a Creditor Does Not Have an Enforceable Lien

August 19th, 2016 at 7:00 am

For a debt to be secured, the creditor has to go through the right legal steps. Otherwise you don’t have to pay the debt.

 

Expressing Your Intentions with Your Secured Debts

When you file a Chapter 7 “straight bankruptcy” case you list all your debts on the bankruptcy court documents. You separately list secured and unsecured ones. A secured debts is one in which the creditor has a lien on an asset you own. For example, a vehicle loan is a secured debt in which the lender is a lienholder on your vehicle’s title.

As to each of your secured debts, you inform the creditor whether you intend to keep the asset or not. If you intend to keep it, you also state what you intend to do with the debt. For example, with a vehicle loan, if you state that you intend to keep the vehicle you would likely also state that you intend to “reaffirm” the debt—that is, pay the debt under its usual terms in order to be able to keep the vehicle.

These disclosures are done through the “Chapter 7 Individual Debtor’s Statement of Intention” form. Your lawyer will help you complete it; after you sign it copies are mailed to your creditors and it’s filed at the bankruptcy court.

What It Takes for a Debt to Be Legally Secured

Creditors must take certain legal steps to create a legally enforceable lien in something you purchase or in something you already owed. Those legal steps are determined by state laws, which tend to be similar from state to state. But they can differ a lot in the details.

Those legal steps vary a lot among different kinds of collateral. Let’s go back to our example of a lender’s lien on a vehicle. The paperwork and procedure to create a lien on a vehicle title is completely different from the paperwork and procedure that your home mortgage lender used to create a lien on your home. And those are completely different from how a furniture store creates a lien on what you buy there.

If a Creditor Doesn’t Go Through the Legal Steps

It’s usually the creditor’s job to do what is necessary to create a lien on what you are buying or on what you are providing as collateral. After all, the creditor is the one who wants the extra leverage against you. You’ll more likely pay a debt it it’s backed up by a lien on something you need or want. And if you don’t pay, the creditor will at least be able to repossess or foreclose on the collateral to get back some of the money it lent.

For countless reasons creditors don’t always go through the legally necessary steps. If not, what happens to that debt in a Chapter 7 case?  

Debts Unexpectedly Not Secured

As mentioned above, there are different procedures for creating liens for different kinds of collateral. Those procedures differ in sometimes crucial details from state to state, and those state laws change over time. Notwithstanding these challenges, you’d think creditors would keep on top of this given how important it would be for them. But they don’t always know the laws as well as you’d think. Or even if their official procedures are appropriate, their employees don’t always follow those procedures perfectly. Creditors can mess up.

As a result when you file a bankruptcy case it’s smart to find out whether debts that you think are secured really are. The difference can be huge. Simply put, it can make the difference between having to pay a debt in full vs. paying nothing at all.

We’ll illustrate this with an example.

The Example

Assume that you bought your stove, refrigerator, clothes washer and drier at a local appliance store 18 months ago.  You and your family had moved into a rental home which didn’t have these appliances. You bought them all on credit for $3,000, financed on a contract through the store. You thought you remember hearing or reading somewhere that the store had a right to repossess what you bought if you didn’t pay off the contract. That would’ve meant that the store had a legally enforceable lien on the appliances to secure the debt you owed.

You didn’t have to make payments on the contract for the first 3 months (“90 days same as cash”). Then a high interest rate kicked in, and you made most of the relatively small payments. But then you didn’t pay the last couple payments, and now still owe $2,600.

You and your spouse have now filed a Chapter 7 bankruptcy case to get a fresh financial start.

Your family really needs these appliances. You have no spare cash with which to replace them, and no credit with which to do so. So you figure you’ll have to keep paying on the high interest contract until it’s paid off. With the low payments and high interest you’d probably end up paying close to $4,000 more on appliances that currently likely have a fair market value of no more than a combined $1,500. But you figure you really don’t have a choice.

The Store Contract Didn’t Actually Create a Secured Debt

However, your bankruptcy lawyer looks through the purchase contract and finds out that the store did not create a lien in the appliances. To create a lien, the contract needed to clearly state that it was doing so. But it did not. As a result, the debt is not legally secured by those appliances or by anything else you own. It’s an unsecured debt, one that can almost certainly be discharged—legally written off—without paying for the appliances.

So, instead of having to pay anything more on the appliances, much less the $4,000 or so that you thought you would, you pay nothing. And the appliances are yours to keep free and clear.

 

When a Creditor Does Not Enforce its Lien

August 17th, 2016 at 7:00 am

Sometimes, even if what you bought is legally collateral on a debt, you can just write off and not pay the debt yet keep what you bought.  


For the last 3 blog posts we’ve been talking about those relatively rare situations when in bankruptcy you can treat a secured debt as an unsecured one. This is rare because generally liens are NOT discharged—written off—in bankruptcy. A secured creditor’s right to enforce the lien normally survives bankruptcy.

As a result most of the time you have only two choices with a secured debt in bankruptcy. First, you can keep whatever asset of yours upon which the creditor has the lien. But then you have to pay the debt. Or second, you can surrender the asset with the lien to the creditor. Then you can discharge the debt.

But sometimes you can have your cake and eat it too—keep the asset and pay nothing.

This happens in two situations that we haven’t covered before:

  • There is a legally valid lien but the creditor chooses not to enforce it.
  • You, or the creditor, or both, believe that the debt is secured by a lien on the asset, but you learn the creditor actually does not have a legally valid lien.

We’ll cover the first of these today, and the second one in an upcoming post.

A Lien Not Enforced

Why would a creditor not pursue an asset in which it has a lien? It wouldn’t do so out of the goodness of its heart. If a creditor can get back some of the money it lost in a debt discharged in bankruptcy by enforcing its lien in your asset, generally it will.

A secured creditor would not enforce its lien generally when the time and expense in doing so is not worthwhile. Often it’s not worthwhile because the asset in which it has a lien has a low market value. That may be the case even though that asset may have a comparatively high value to you.

Here’s an example of this.

Low Market Value

Certain consumer goods by their nature have a very fast rate of depreciation. If you buy a laptop computer or tablet for $500, within a month it’s worth close to nothing. Why? First, people don’t want to buy a used computer/laptop because it’s almost impossible to verify that it doesn’t have a hidden virus or malware. Second, technology advances so fast that these kinds of electronics become obsolete very quickly. Third, as a result there is not much of a market for used electronics.  A creditor would not be able to get hardly anything for it once it goes through the time and expense of taking possession of it.  

So a creditor with a valid lien on your laptop/tablet may very well do nothing if you file a Chapter 7 “straight bankruptcy” case. In that case you would have to acknowledge that the debt was secured by the item if indeed it is. But you may simply not hear from the creditor asking for surrender of the laptop/tablet. And you may never hear from the creditor ever again after its debt is discharged a few months later.

The creditor is just being practical. Why should it waste its employees’ time to get ahold of the laptop/tablet and sell it if virtually no money can be gotten out of it?

Creditor Using Its Leverage

However, a pushy creditor could see this all differently. Although this kind of asset has such low fair market value, it may be worth very, very much to you. You’ve put software that you like on the devise. You’ve got it configured the way you want it. It has data in its memory that’s important to you. You could transfer all that to another devise, but you now likely don’t have the money or credit to buy another one. And even if you could buy another one, getting the new devise up to speed would involve hours and weeks of your effort.  A creditor could use that as leverage to make you pay the debt, or at least part of it.

How can you tell the difference between these two kinds of creditors? How do you know whether you’d have to pay for a debt in order to keep an asset like this? And if you’d have to pay something, how could you minimize how much you have to pay?

Creditors tend to have policies one way or the other. Your bankruptcy lawyer deals with these creditors every day and is very likely familiar with the policies of your creditors. He or she will advise you about appropriate tactics to meet your goals.

Also, creditors candidly understandably take advantage of people who file bankruptcy and don’t have a lawyer representing them. They can use their leverage much more effectively against someone who isn’t fully informed about the pertinent legal issues, and doesn’t know when or how to push back.

 

Pay off Debt and Boost Your Credit with the “One-Two Payment Plan”

July 31st, 2015 at 10:56 am

Texas bankruptcy attorney, debt relief, Texas chapter 7 lawyer,Despite the ominous headlines about the national debt, the percentage of American households that have debt has actually decreased in the last decade, according to the National Census. Still, millions of Americans file for bankruptcy each year due to medical bills, lost employment, and other factors.

If you are facing insurmountable debt, then bankruptcy may be a viable option. There are also alternatives to bankruptcy that can help you manage payments and inch toward financial security. This article will discuss one such method, known as the “one-two payment plan.”

Break Down and Prioritize Your Debt

You might be familiar with the phrase “prioritize your debt,” but this can be a somewhat nebulous piece of advice without a thorough understanding of your current financial state. By carefully examining all of your debts and taking note of balances, interest rates, and payment histories, you will be able to identify which debts to pay first. These are usually the ones with the highest interest rates.

Create a Budget for Paying Debt

After identifying which debts to address first, it is time to create a monthly budget for payments. Often, people mistakenly adjust this budget after paying off their highest priority debt. However, it is critical that you maintain this budget until you have paid off all creditors. This not only will help you pay debts faster, but it will also improve your credit score with a steady history of consistent payments.

When in Doubt, Seek Professional Advice

Although the one-two payment plan can make a significant difference in your financial life, debt can be a difficult hurdle to overcome. In many cases, filing for bankruptcy is an intelligent decision that offers debtors a faster path toward financial stability.

If you would like to learn if you are a good candidate for bankruptcy, contact the Law Offices of Chance M. McGhee for a free initial consultation. As an experienced San Antonio bankruptcy attorney, Mr. McGhee can evaluate your financial situation and provide valuable guidance. To schedule a consultation, call our office today at 210-342-3400.

Factors Which May Impact Chapter 13 Bankruptcy Eligibility

May 22nd, 2015 at 12:16 pm

Texas bankruptcy attorney, Texas chapter 13 lawyer, bankruptcy qualifications, Filing for chapter 13 bankruptcy is a smart option for thousands of Americans who struggle to pay their debts. Choosing to file bankruptcy is a major decision, and you should only do so after evaluating alternative options. You should also be aware of the bankruptcy qualifications that apply when attempting to file for chapter 13:

Personal Income

According to Uscourts.gov, personal income is the first criteria when filing for chapter 13 bankruptcy. Proof of a stable income is essential.

Remember that chapter 13 differs from other forms of bankruptcy in that it is not an outright dismissal or liquidation of debts. Instead, this chapter offers the option to restructure and pay off debts over time. This is only possible when the filer has a stable income. The length of the payment plan depends on how the filer’s income compares to the state median.

Total Debt

There is a limit to how much debt you can have when filing for chapter 13 bankruptcy. The current maximum for unsecured debt is $383,175, and the filer may have no more than $1,149,525 in secured debt. These amounts can shift based on the consumer price index.

Previous Dismissal

If your request for chapter 13 bankruptcy has been dismissed previously, you will not only be ineligible to apply for chapter 13, but you will also be unable to file for other chapters for a period of 180 days. Grounds for dismissal include failure to appear at hearings or violating court orders.

Attorney Chance M. McGhee is a dedicated San Antonio bankruptcy lawyer with more than 20 years of experience. He can help you understand your debt relief options and decide if filing for chapter 13 bankruptcy is a smart decision in your particular situation. Contact the Law Offices of Chance M. McGhee at 210-342-3400 for a free consultation.

What Happens When Chapter 13 Bankruptcy and Divorce Meet?

June 6th, 2014 at 1:27 pm

Chapter 13, Chapter 13 bankruptcy reduction, San Antonio bankruptcy lawyer, Texas bankruptcy attorney, unsecured debt, convert to Chapter 7 bankruptcy, Chapter 13 plan, bankruptcy and divorceIt is no secret that financial problems can lead to the demise of a marriage. A Chapter 13 repayment plan can ease some of the financial tension that you may be experiencing. However, it cannot fix your marriage.

If you are in a Chapter 13 repayment plan, divorce can certainly change things. Here are the options that you can implement to deal with it.

Chapter 13 Reduction

You may opt to have your Chapter 13 plan reduced in order to make the payments more affordable based on the new circumstances. The type of debt that you carry has a lot to do with this option. Debts such as child support, IRS payments, delinquent mortgage payments, and alimony payments cannot be adjusted. These are all fixed payments. Most of the debts in a Chapter 13 plan are unsecured debt such as credit cards and loans. These can typically be adjusted; however, you do need to consult with your Texas bankruptcy attorney to see what the best option is for you.

Convert to Chapter 7

If you do not have any assets, or a very small amount of assets, converting to a Chapter 7 bankruptcy is also a viable option. Usually those who file Chapter 13 do so because their incomes are too high for the Chapter 7 plan. However, divorce changes this situation. While the income will remain the same, the expenses will double with a divorce now that there are two separate households to consider. There are two house payments, separate utility bills, and essentially no more shared expenses. There may also be issues of child support and spousal support to consider, as well as any division of assets such as cars.

If you do choose to convert to a Chapter 7 plan, make sure that you have your attorney assist you so that you can include any new debt that will be affected by the doubling of bills. If you are going through a Chapter 13 bankruptcy and are now considering divorce, please contact a San Antonio bankruptcy lawyer today at 210-342-3400.

Creditor Judgments: What You Need to Know

May 26th, 2014 at 4:48 pm

creditor judgments, Texas bankruptcy attorney, San Antonio bankruptcy attorney, unsecured debt, lien on your property, fiduciary accounts, post judgment debt, file for bankruptcyOne of the greatest fears people have regarding bankruptcy is due to the overall negative stigma associated with filing. Another reason for the apprehension is not knowing exactly when the right time is to file for bankruptcy. And often asked is the question, “Is it ever too late to file bankruptcy?”

The short answer is no. However, according to some experts, you will want to file before your rights are taken away because of a judgment.

A creditor has the right to take you to court for any unsecured debt. An unsecured debt is one that does not have an item of collateral attached to it such as a house or a car. This may be for a loan, or even a credit card. Once the creditor wins the case, you will then have a civil judgment against you and a new negative mark on your credit.

The creditor can collect on the judgment in several ways:

  • Federal law says that the creditor can take 25 percent of your wages after taxes. There are state regulations in some states that dictate a lower amount. The creditor can continue to garnish your wages until the debt is satisfied.
  • The creditor can place a lien on your real property such as your house or car. When you sell that real property, the creditor gets paid from the proceeds.
  • The creditor may also be able to place a levy on your fiduciary accounts. This means they can take cash from your bank accounts. They can even levy your real property to be sold at an auction.

In order to avoid a post judgment debt, you will want to file for bankruptcy before it gets to that point. One of the things that cannot be removed from your credit report is a civil judgment. In this case, waiting too long can make your credit issues worse. If you have questions about filing bankruptcy, call a Texas bankruptcy attorney today.

Call today for a FREE Consultation

210-342-3400

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